Apache Chief predicts increasing price of natural gas

Apache Corporation’s Chief Executive Officer G. Steven Farris made a presentation to the Ford Bernstein’s 29th Annual Strategic Decisions Conference. Amongst his remarks Farris mentioned the company’s interests in the Kitimat project. “Kitimat went from raw material, to wholesale and we’ve got to get it to retail. Right now we have 50 per cent of that. Chevron is now the operator of the downstream. It’s one of their top two projects in that company. You want to listen to what they have to say about it, listen to the year-end earnings call. They are very high on this project and they’re high on it because of Liard which has 52 cf of gas,” he said.
“We have 57 people of Apache into the joint venture with Chevron downstream. We have 180 people in their project. We are working very hard on this project. And at some point this project will go forward. What our interest ends up being will just have to get there and see. It will be very hard for us to be able to fund 50 per cent of this project.
“So we’re going to accelerate North American onshore liquids, going to advance those projects, we going to do what we do best which is to drive costs down. We’re going to grow our dividend. We grew our dividend this year, we grew it last year. I would suspect that we will continue to do that on a yearly basis over the field future. If oil prices go to $50 that may not be the case, but in terms of everything else being equal that’s where we’re going to be.”
Farris was asked how much will be spent on Kitimat before it begins producing cash flow. He said it depends on a lot of things. “It depends on what kind of interest we end up with, it depends of the fee changes, the supplemental fee changes, anything, what’s Chevron going through. Certainly we going to have some upfront costs….but in terms of big dollars until we get the FIB, there’s not going to be a lot of big dollars spent on Kitimat,” he said.
The rate of return they are looking at is 14 per cent and 20 years of solid cash flow. “Chevron has taken the lead on the market side and on the downstream side and we’re taking the lead on the upstream side.”
He was asked about not having a 50 per cent interest in Kitimat and whether they would bring in a downstream partner. Ferris said it would be a combination – downstream buyers are starting to demand more and more, being a piece of the upstream. “We saw it being a little for a few years here and now they’re looking for a bigger share of the upstream to correspond with what they’re doing in the downstream. And I would expect that to be the model, certainly in the initial Kitimat model.”
Farris was asked a hypothetical question about incentives on the project. “We have an incentive program for the guys and gals that work on those types of projects that is separate from our regional VPs. We have separated Kitimat, we’ve now got Kitimat upstream business which does nothing but look off to the upstream part of the Horn River and Liard gas in Canada and working with Chevron and putting together the upstream. That’s totally different incentive than our base operating business.” Farris said
He has changed his view on natural gas prices declining “not that it’s going back to $14 but I think you got some upside in the price right now. I think we’ve hit the bottom and not when it’s going to go up in gas wells because we’ve drilled very, very few gas wells. If we wanted production, we could drill Horn River and get 1,000,000,000 ft.³ a day out of Horn River right now. So it’s not about how much gas you can flow or what your gas production is. In my  sense for lots of reasons, I think you’re seeing utilities being regulated to go to natural gas. I had a meeting with a number of eastern utilities here in my role as chairman of American Natural Gas Association. We met with all the utilities on the East Coast and all of them were scared to death of LNG export because they are being dictated to get off. Some of them go to natural gas and if you look at their base load now it’s becoming more and more natural gas which means you’re going to get more tomorrow. I am slightly positive on the natural gas side. When I say I’m slightly positive the reason I’m only saying slightly positive is because we got a lot of gas in this country. And if we sell six dollar gas we going to see a lot of people run out of it …. (in the) United States of America, we should let free markets work. If people could export LNG, then they ought to be able to export LNG. We preach that around the world. Having said that, I don’t really see a bunch of LNG facilities going in. It’s a difficult model to put together in the United States because you have got your gas or you got to aggregate the gas at the LNG which is not is easy. I mean if you say it real fast, it sounds okay. But when you stop to think about what that means it’s more difficult than you think it is.”

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